Question

1. At Frederico's, Amanda and Long work alternate lunch hours. Normally Amanda works the cash register at the checkout counter, but during her lunch hour Long takes her place. They both use the same cash drawer and count cash together at the end of the day. 2. Sandeep is a very hard-working employee at Stan's Hardware. Sandeep does such a good job that he is responsible for most of the company's office and accounting tasks. The only thing the owner has to do is sign cheques. 3. At Half Pipe Skate, they are very concerned about running an efficient, low-cost business. Consequently, the manager has assigned the same individual to do the purchasing and prepare the receiving reports when the merchandise is delivered. 4. At Traction Tires, most of the tires are stored in a fenced outdoor storage area. One of the employees noticed a place where the fence needed to be repaired and reported this to the manager. The fence was fixed before the close of business that night. 5. The internal auditors at Humber Manufacturing regularly report their findings to senior management, who get the accounting department to investigate and resolve any problems. 6. All employees at Vincent Travel take a vacation every year. During that time, with the exception of the controller's position, the employees' duties are assigned to another individual while they are on vacation. Instructions a. State whether each situation above is a strength or a weakness in internal control. b. For each weakness, suggest an improvement. Identify weaknesses in internal control over cash receipts, and suggest improvements.

Answer 1

Evaluating internal controls in various business scenarios, several weaknesses were identified, particularly in segregation of duties and cash handling. Suggested improvements include assigning separate individuals to perform cash handling and recording, separating the duties of accounting functions, and rotating all positions to ensure a thorough system of checks and balances, which enhances internal controls.

Step-by-step explanation:

When evaluating internal controls within businesses, it is important to identify whether certain practices are strengths or weaknesses in terms of safeguarding assets and promoting efficiency and effectiveness of operations. The scenarios provided each offer insight into the internal control practices of various businesses, and thus, the opportunity to assess their control environment.

Scenario Analysis

1. Amanda and Long's cash handling at Frederico's presents a weakness in internal control since there is no segregation of duties between cash handling and cash recording. Improvement: Assign a third party to reconcile the cash drawer against sales records.
2. Sandeep's role at Stan's Hardware reveals a weakness, as one person is in charge of most accounting tasks, increasing the risk of errors or fraud. Improvement: Separate the accounting functions among different employees to ensure checks and balances.
3. At Half Pipe Skate, having the same individual responsible for both purchasing and receiving reports is a weakness since this could lead to unrecorded transactions or theft. Improvement: Split these tasks between two people to maintain proper internal controls.
4. The quick repair of the fence at Traction Tires demonstrates a strength in internal control, as it shows responsiveness to potential security risks.
5. Humber Manufacturing's regular internal audits and management's response to findings is a strength as it promotes corrective action and continuous control improvement.
6. At Vincent Travel, vacations for all employees except for the controller, who retains singular control over their duties, indicates a weakness. Improvement: Implement cross-training and ensure duties of the controller are also rotated to prevent fraud and errors.

Suggested Improvements for Internal Control

Improving internal controls over cash receipts could include enforcing dual control over cash handling, implementing routine third-party audits, and separating duties related to transactions to reduce the risk of misappropriation of assets. Establishing clear policies and regular training for employees can further strengthen internal controls.